Study Guides (258,908)
CA (125,049)
UTSG (8,541)
ECO (570)
ECO101H1 (120)
Jack Carr (5)
Midterm

Term Test 1 Study Guide

25 Pages
869 Views

Department
Economics
Course Code
ECO101H1
Professor
Jack Carr

This preview shows pages 1-3. Sign up to view the full 25 pages of the document.
I. Ten Principles of Economics
Business Cycle fluctuations in economic activity, e.g. employment & production
Economics the study of how society manages its scarce resources
Efficiency the property of society getting the most it can from its scarce resources
Equity the property of distributing economic prosperity fairly among the members of
society
Externality the impact of one persons actions on the well-being of a bystander
Incentive something that induces a person to act
Inflation an increase in the overall level of prices in the economy
Marginal Changes small incremental adjustments to a plan of action
Market Economy an economy that allocates resources through the decentralized decisions
of many firms & households as they interact in markets for goods & services
Market Failure a situation in which a market left on its own fails to allocate resources
efficiently
Market Power the ability of a single economic actor (or small group of actors) to have a
substantial influence on market prices
Opportunity Cost whatever must be given up to obtain some item
Productivity the quantity of goods & services produced from each hour of a workers time
Property Rights—the ability of an individual to own & exercise control over scarce resources
Rational People people who systematically and purposefully do the best they can to achieve
their objectives
Scarcity the limited nature of societys resources
Ten Principles of Economics
1)People face trade-offs
oMaking decisions requires trading off one goal against another
oClassic trade-off is between guns & butter (national defence vs. consumer
goods)
oSociety faces trade off of efficiency vs. equity (size of economic pie vs.
distribution)
2)The Cost of Something is What You Give Up to Get It
1
www.notesolution.com
oComparison of costs & benefits of alternative courses of action
oMust consider the opportunity cost
3)Rational People Think at the Margin
oMarginal changes (small incremental adjustments) to existing plan of action
oDecisions made by comparing marginal benefits & marginal costs
oA persons willingness to pay for any good is based on marginal benefit that
an extra unit will yield
oMarginal benefit depends on how many units a person already has
oA rational decision maker acts if & only if marginal benefit exceeds marginal
cost
4)People Respond to Incentives
oBecause rational ppl make decisions by comparing costs & benefits
oDirect & unintended effects of altering incentives
oAlteration of the cost-benefit calculation
5)Trade Can Make Everyone Better Off
oTrade allows each person to specialize in the activities he/she does best &
enjoy a greater variety of goods & services
oSimultaneously competitors & partners
6) Markets Are Usually a Good Way to Organize Economic Activity
oMarket economy > central planning
oDecisions of a central planner = replaced by decisions of millions of firms
&households
oFirms & households interact in marketplace; prices & self-interest guide
decisions
2
www.notesolution.com
oFree markets comprised of buyers & sellers primarily interested in own well-
being
oAdam Smith: Households & firms interact in markets as if guided by an
invisible hand
oMarket prices reflect both value of a good to society & the cost of making that
good
oSmiths insight: Prices adjust to guide these individuals to reach outcomes
maximize the welfare of society as a whole
oTaxes distort prices, price control causes harm
7)Governments Can Sometimes Improve Market Outcomes
oInvisible Hand can work magic only if govt enforces rules & maintains
institutions
oRely on govt-provided services & courts to enforce property rights
oI.H. not omnipotent 2 reasons for govt to intervene in economy & change
allocation of resources
To promote efficiency
To promote equity
oMost policies aim to either enlarge economic pie or change division of
oI.H. may also fail to ensure equitable distribution of economic prosperity
oAlthough govt can improve market outcomes at times doesnt mean will
8)A Countrys Standard of Living Depends on Its Ability to Produce Goods & Services
oLarge variation in avg. Income reflected in various measures of quality of life
oBig changes in living standards over time
oAlmost all variation in living standards is due to differences in countries
productivity
3
www.notesolution.com

Loved by over 2.2 million students

Over 90% improved by at least one letter grade.

Leah — University of Toronto

OneClass has been such a huge help in my studies at UofT especially since I am a transfer student. OneClass is the study buddy I never had before and definitely gives me the extra push to get from a B to an A!

Leah — University of Toronto
Saarim — University of Michigan

Balancing social life With academics can be difficult, that is why I'm so glad that OneClass is out there where I can find the top notes for all of my classes. Now I can be the all-star student I want to be.

Saarim — University of Michigan
Jenna — University of Wisconsin

As a college student living on a college budget, I love how easy it is to earn gift cards just by submitting my notes.

Jenna — University of Wisconsin
Anne — University of California

OneClass has allowed me to catch up with my most difficult course! #lifesaver

Anne — University of California
Description
I. Ten Principles of Economics Business Cycle fluctuations in economic activity, e.g. employment & production Economics the study of how society manages its scarce resources Efficiency the property of society getting the most it can from its scarce resources Equity the property of distributing economic prosperity fairly among the members of society Externality the impact of one persons actions on the well-being of a bystander Incentive something that induces a person to act Inflation an increase in the overall level of prices in the economy Marginal Changes small incremental adjustments to a plan of action Market Economy an economy that allocates resources through the decentralized decisions of many firms & households as they interact in markets for goods & services Market Failure a situation in which a market left on its own fails to allocate resources efficiently Market Power the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices Opportunity Cost whatever must be given up to obtain some item Productivity the quantity of goods & services produced from each hour of a workers time Property Rightsthe ability of an individual to own & exercise control over scarce resources Rational People people who systematically and purposefully do the best they can to achieve their objectives Scarcity the limited nature of societys resources Ten Principles of Economics 1) People face trade-offs o Making decisions requires trading off one goal against another o Classic trade-off is between guns & butter (national defence vs. consumer goods) o Society faces trade off of efficiency vs. equity (size of economic pie vs. distribution) 2) The Cost of Something is What You Give Up to Get It 1 www.notesolution.com o Comparison of costs & benefits of alternative courses of action o Must consider the opportunity cost 3) Rational People Think at the Margin o Marginal changes (small incremental adjustments) to existing plan of action o Decisions made by comparing marginal benefits & marginal costs o A persons willingness to pay for any good is based on marginal benefit that an extra unit will yield o Marginal benefit depends on how many units a person already has o A rational decision maker acts if & only if marginal benefit exceeds marginal cost 4) People Respond to Incentives o Because rational ppl make decisions by comparing costs & benefits o Direct & unintended effects of altering incentives o Alteration of the cost-benefit calculation 5) Trade Can Make Everyone Better Off o Trade allows each person to specialize in the activities heshe does best & enjoy a greater variety of goods & services o Simultaneously competitors & partners 6) Markets Are Usually a Good Way to Organize Economic Activity o Market economy > central planning o Decisions of a central planner = replaced by decisions of millions of firms &households o Firms & households interact in marketplace; prices & self-interest guide decisions 2 www.notesolution.com
More Less
Unlock Document


Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit